CDL Hospitality Trusts hoping for a better 2Q

1Q15 results below expectations
CDL Hospitality Trusts (CDLHT) reported its 1Q15 results, with DPU missing our expectations. Gross revenue slipped 3.5% YoY to S$42.2m, attributed to weaker performance from its Singapore hotels (-13%), but partially mitigated by contribution from two new Japan hotels acquired in Dec 2014. This formed 24.0% of our full-year forecast. DPU fared worse, dipping 11.3% YoY to 2.44 S cents, and this constituted 22.1% of our FY15 projection. This was partly because distributable income does not include contribution from its Japan Hotels, which will only see distribution in 4Q15 after the financial results of its Japanese subsidiary are audited (fiscal year ending 30 Sep). Adjusting for this, DPU would have declined at a lower rate of 8% YoY.

June should see some uptick
CDLHT’s Singapore Hotels RevPAR fell 9.9% YoY to S$173, as average daily rate slumped 9.6% to S$197 while occupancy rate was largely stable at 87.7% (-0.5 ppt). The Singapore hospitality market was impacted by the absence of the biennial Singapore Airshow and sluggish corporate spending environment. According to CDLHT, RevPAR for the Singapore Hotels declined 10.1% YoY for the first 28 days of Apr. This reflects the continued macroeconomic vagaries and soft consumer sentiment. While some recovery could happen in May, we believe it would be Jun before CDLHT sees a more significant uptick. Out of the 20 hotels officially selected to accommodate athletes and officials participating in the upcoming South-East Asian Games next month, four are owned by CDLHT. Namely, these are Copthorne King’s Hotel, Grand Copthorne Waterfront Hotel, M Hotel and Novotel Singapore Clarke Quay. Based on our understanding, take-up rates for these hotels would range from 40%-80% of capacity, with room rates at least similar to their corporate rates.

As at end-1Q15, CDLHT’s gearing ratio stood at 32.3%. Following a refinancing exercise, 61% of its debt are fixed (as at 29 Apr 2015). We ease our DPU forecasts by 1.5% and 1.2% for FY15 and FY16, respectively. Consequently, our fair value estimate is lowered from S$1.76 to S$1.74. Maintain HOLD.

CDL Hospitality Trusts: 4Q14 results within consensus expectations

CDL Hospitality Trusts (CDLHT) reported its 4Q14 results which was in-line with the street’s expectations. Gross revenue and DPU rose 14.4% and 7.2% YoY to S$45.1m and 3.13 S cents, respectively, underpinned by the recognition of a full quarter's hotel revenue from Jumeirah Dhevanafushi amounting to S$5.4m. FY14 gross revenue came in at S$166.8m (+12.1%) , while DPU was flat at 10.98 S cents (+0.1%). This formed 103.1% and 99.8% of Bloomberg consensus’ projections, respectively. Looking ahead, CDLHT will continue to focus on finding suitable acquisition opportunities in the hospitality sector. Its healthy gearing ratio of 31.7% provides it with sufficient debt headroom to finance prospective acquisitions. We will provide more updates after speaking with management. Our HOLD rating and S$1.80 fair value estimate is under review.

CDLHT 4Q13 boosted by Angsana Velavaru

CDL Hospitality Trusts (CDLHT) reported 4Q13 results that were generally in line with ours and the street’s expectations. 4Q13 revenue rose by 2.8% YoY to S$39.4m and net property income climbed 2.5% YoY to S$36.4m. 4Q13 DPU is 2.92 S cents (up 0.7% YoY), bringing FY13 DPU to 10.97 S cents.

RevPAR for CDLHT’s Singapore hotels in 4Q13 had declined 6.0% YoY. For the first 26 days of Jan 2014, RevPAR for CDLHT’s Singapore hotels declined by 0.3% YoY, in-line with our expectations for fairly flat RevPAR change for the industry in 2014.

While contributions from the Singapore and Australian hotels continued to be weak, Angsana Velavaru boosted the results, with a recognition of S$5.0m (inclusive of a 11 months variable rent of S$3.0m). We are placing our FV of S$1.84 and Buy rating

Continued weakness in Singapore hospitality

Weak Singapore performance
For Jan to Apr this year, RevPAR for Singapore hotels fell 2.6% YoY to S$218. Furthermore, while visitor arrivals grew 6.4% in 1Q13, gross lettings for 1Q13 increased by only ~2.8% to 2.8m room nights. On a per capita basis, visitor arrivals are converting into fewer room nights. This trend was present in the 2012 figures (gross lettings were flat YoY while visitor arrivals climbed 9.1%). RevPAR for Upscale and Mid-tier Singapore hotels for Apr fell 12.8% YoY and 4.7% to S$229 and S$160 respectively. Note that CDLHT’s Singapore hotels fall in the Midtier/ Upscale categories. Industry sources indicate that Singapore hotel bookings have generally been weak through 2Q13 so far.

Unimpressive 1Q13 for CDLHT
Just to recap, 1Q13 RevPAR for CDLHT's Singapore hotels fell 7.9% YoY to S$191. Management attributed the weak performance to the absence of the biennial Singapore Airshow, and CNY falling in Feb instead of Jan, which disrupted corporate travel. There was also tighter spending on corporate travel.

Reducing FY13 RevPAR growth assumption
For 2013-2015, we forecast hotel room demand growth of 5.4% p.a., lower than the projected

CDL Hospital Trust competition to increase

STB targets for 2013 are out
In 2012, Singapore registered visitor arrivals of 14.4m (+9.1%) and tourism receipts of S$23b (+3.1%). For 2013, STB is targeting 14.8m-15.5m arrivals (+2.9% to +7.7% YoY) and tourism receipts of S$23.5b-24.5b (+2.2% to +6.5% YoY). The government has noted that the next phase of growth will have to come from increasing the spend per visitor, as opposed to just adding more visitors. However, STB seems to be incorporating slightly lower spend per visitor arrival assumptions for 2013 compared to 2012, based on the implied YoY growth rates of the 2013 targets. We believe that this highlights the challenge of converting arrivals into increased spending, and supports our thesis that the 1H13 outlook for Singapore hospitality is muted.

Blended exposure to Upscale and Mid-tier
We believe that CDLHT’s Singapore hotels are fairly evenly exposed to the Mid-tier and Upscale segments, because their FY12 RevPAR was S$211, close to the mean of S$264 and S$171, which are the RevPAR averages for Singapore Upscale and Midtier hotels respectively. As detailed in our hospitality sector report dated 5 Mar 2013, we project that for 2013-2015, the Economy, Mid-tier and Upscale/Luxury categories will grow +5.9% p.a., +8.5% p.a. and +4.4% p.a. respectively. As a group, the Midtier/ Upscale/Luxury segment will grow 5.8% p.a., the same rate that the overall supply will grow. This rate is lower than the projected room demand of 5.4% p.a., indicating that competition is likely to intensify in the segments that CDLHT is represented in. We also note that 1Q13 results are probably going to be weak due to the lack of the biennial Singapore Airshow and the fact that Chinese New Year is in Feb this year instead of Jan (corporate travel picks up after CNY).

Maintain HOLD
Adjusting our assumptions and removing the

CDL Hospitality Trusts: Flat 4Q12 results as expected

● Revaluation gain of S$15m
● 4Q12 RevPAR flat
● Maintain FV

4Q12 in line
CDL Hospitality Trusts (CDLHT) reported 4Q12 results that were generally in line with ours and consensus estimates. Revenue grew by 1.4% YoY to S$38.3m, and net property income rose by 0.2% YoY to S$35.6m. For 4Q12, NPI contribution from the Australia hotels declined 3.0% YoY to S$4.3m due to translation loss arising from the weaker AUD. CDLHT recorded a revaluation gain of S$15.0m on its properties, which was largely due to its Singapore properties. 4Q12 DPU of 2.90 S cents was down 1.4% YoY. FY12 DPU totaled 11.32 S cents, up 2.4% YoY and giving an annualised distribution yield of 5.7% based on the closing price on 29 Jan 2013.

Full year RevPAR record
RevPAR for the Singapore hotels was flat YoY in 4Q12 at S$205; occupancy was up 0.8ppt at 89.4% while average daily rate fell 1.3% YoY to S$229 (excludes Studio M Hotel, which was acquired on 3 May 2011). Management indicated that travellers remained cautious about their expenditure due to the weak global economic climate, and MICE business was affected too. For FY12, RevPAR excluding Studio M Hotel grew by 3.3% to S$211, a record high. Our assumptions turned out to be fairly accurate; we had assumed 3.2% YoY RevPAR growth for the Singapore hotels.

Quiet outlook for SG hotels

Hospitality REITs Sector

Initiate with OVERWEIGHT view
We initiate with an OVERWEIGHT on Singapore Hospitality REITs. We prefer CDL Hospitality Trusts [BUY, FV: S$2.04] to Ascott Residence Trust [BUY, FV: S$1.23].

More organic growth for CDLHT
The buoyant Singapore hotel industry has been the key driver for CDLHT, whose six Singapore hotels accounted for 77% of its FY11 gross revenue. In 1Q12, CDLHT’s Singapore hotels registered an average RevPAR higher than all previous 1Qs and that quarter also marked the third consecutive one, starting from 3Q11, to set RevPAR records. We estimate that for 2012-2015 the demand for hotel rooms in Singapore will grow at 6.4% p.a., outstripping the hotel rooms supply growth, which we project will be 3.7% p.a. over the same period. We prefer CDLHT’s positioning (Upscale/Mid-tier) relative to others more clearly situated in the Mid-tier/Economy categories, as we see higher growth in hotel rooms supply for these latter tiers at 5.3%, versus 3.0% for the Luxury/Upscale categories.

ART’s master leases and management contracts
ART’s portfolio is diversified with properties in 12 countries. As of 31 Mar, 78% of its assets were spread over

CDLHT will continue to be a beneficiary of the blossoming tourism industry

Fair Value S$2.00


Visitor arrivals on track
Visitor arrivals maintained strong growth of 13.4% YoY in Jan 2012 to reach 1.2m. In that month, arrivals from the three largest countries of origin, namely Indonesia, China and Malaysia, saw solid increases. These countries accounted for 40% of all visitor arrivals last year. Notably, arrivals from China spiked up 52.8% YoY to 201.7k in Jan. While some of the increase could be attributed to Chinese New Year falling in Jan instead of Feb this year, we note that the Jan-12 China number is 34.5% higher than the Feb-11 figure.

High-end hotels outperform in RevPAR, occupancy
According to the STB, average RevPAR for Singapore hotels increased 11.7% YoY to S$209 in Jan. On a RevPAR basis, high-end hotels outperformed budget hotels. The Luxury and Upscale tiers increased by 9.1% and 14.3% respectively while Mid-tier and Economy hotels saw declines of 6.4% and 3.6%. These results support our preference for the high-end hotel sector. The decline in RevPAR for budget hotels comes not from declining average room rates, which actually increased, but from reduced occupancy (down 7 ppt). Many of the visitors from developing countries are not budget travelers.

CDLHT has good positioning